“Gold stocks would not benefit from a return to the gold standard”
How can that be true? The value of the U.S. gold reserve (as with all other industrial nations) is a tiny fraction of the value of the U.S. money supply (M3). For any government to return to the gold standard (back their money with gold) would require that they purchase HUGH amounts of gold to match the value of the money supply. The value of gold will explode! Here’s some numbers:
$753 billion of American currency in circulation as of Dec. 18, 2006
[ just currency w/o all of M3 (checking & savings accounts, money market accounts, CDs...]
Source
U.S. gold reserve 260 million ounces (8,150 tons) in December 2006
Source
9/27/07 price of gold $735 per oz.
That means JUST to back up currency with gold, America needs $753 billion of gold
- which @ $735/oz = 1,024 million ounces.
Having only 260 million ounces of gold on reserve covers only 1/4 of the currency in circulation. We would need to buy 764 million more ounces (23,875 tons) or quadruple the supply.
* * More than the total reported gold reserve of all other countries combined (22,000 tons).
Source*****
Being on a gold standard doesn’t mean that you have to have gold to balance every dollar in circulation, just that you are willing to exchange dollars for gold at a set amount. As long as people are willing to accept that value, they will not exchange dollars for gold. If the US would print too many dollars, the people holding them would start exchanging them for gold taking excess dollars out of circulation. If there are too few dollars available, people would exchange gold to get more dollars to buy things.
It is just like the fractional reserve that all banks in the US use. You put your money in a savings account or a cd and the bank uses that money to make loans to other people. They only keep enough actual cash on hand to handle the normal in flow and out flow of cash. That is why no bank can stand a “run on the bank.” Think back to Jimmy Stewart in “Its a Good Life.”
It is also why we have the FDIC. If a bank screws up and makes a bunch of bad loans that it can’t collect, we know that the government will insure that we get all of our money up to $100,000.
From the early 1800’s until about 1933, the price of gold was set at around $28 US dollars per ounce. (Except for the time of Civil War). At any time you could exchange $28 US dollars for an ounce of gold. Confidence that the US dollar was “as good as gold” meant that most people would rather use the US dollar than carry around a bunch of gold. However there were gold coins.
Inflation, as we know it today, was almost non-existent under the gold standard.
In the early 30’s, FDR eliminated all private ownership of gold currency and changed the value of gold to $32 per ounce. However, private citizens could no longer change US dollars for gold.
This worked until the 1960’s and then we had a two tiered gold price. Central banks were exchanging gold at the official US price of $32 dollars per ounce, while the private market price was much higher.
Nixon closed the gold window in the early 70’s and since then we have seen very high inflation rates as the value of the US dollar or any other currency is dependent on how many the central banks decide to print. E.g. the US dollar will buy 1/3 to 1/4 of the products today that it could buy in 1970.
****Does Ron Paul see himself as a future gold equivalent of “oil sheiks”?****
Stupidity.
I conceded that no government could reach the ideal goal of matching their full money supply (M3) by crunching only the numbers for the physical currency in circulation (only part of M1). But you don't deal with the reason the U.S. was forced off the gold standard:
"The US gold reserves had declined from a peak of 21,682 tonnes in 1948 to 15,821 tonnes by 1960. By the time Nixon closed the gold window, US reserves had dropped below 8,500 tonnes. Nixon could not risk any further depletion of US gold reserves."Source
US gold reserves are even lower today and both the total money supply (M3) and currency in circulation has grown exponentially.
Source
In 1971, when Nixon was forced to take us off the good standard - due to demands at the gold window - M3 was less than just today's currency component of the M3 (about $700 billion) and M1 (currency and checking accounts together) was around $100 billion.
To see viable numbers for maintaining a gold standard look at 1960. Gold reserves were 15,821 tons and M3 was less than $100 billion. At $35/oz that was $18 billion gold reserves for total money supply (M3) of $100 billion or 18%.
With today's $10,000 billion of M3, 18% would be $1,800 billion dollars of gold reserve. At $735/oz that's 76,530 tons of gold reserve. And yet today our 8,200 ton gold reserve is even less than even 1971 - when Nixon was forced to abandon the gold standard.
How could the U.S. open the gold window without a further depletion of the reserve forcing it to either close it again or make massive purchases of gold and causing an extreme increase in the price of gold and an extreme devaluation of the dollar?
As for the stupidity of questioning Ron Paul's personal motives and financial ambitions... His investments in gold while advocating a return to the gold standard is either dishonest, if he expect gold to benefit from his position, OR stupid, if he expects it to suffer from that position.
For you to believe this conflict of interest should not be questioned is beyond stupidity.